The chart above shows the various stock trading strategies tracked by the American Association of Individual Investors. The strategies can be broadly categorized into strategies that invest based on value, growth, momentum, earnings estimates, and combinations of these. These strategies have been featured because they have been top ranked at one time or other over the last few years.

The blue shades show the years these strategies beat the S&P500 returns shown in the last column. Except for the ISO-Algorithm, notice that no one strategy consistently beats the index. As most active funds employ similar strategies, it comes as no surprise that only a handful beat their benchmark index, albeit inconsistently.

Daniel Kahneman, a Nobel Laureate and professor of psychology at Princeton University states: “It is clear that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their minds….Many individual investors lose consistently by trading, an achievement that a dart-throwing chimp could not match.”

Regardless of whether someone is listening to an expert, a fund manager, or is an individual investor, what Daniel Kahneman has discovered is that it is better to take the expert’s darts and hand them over to a chimp!

So how does the ISO-Algorithm seem to buck this trend of inconsistency? In the next few articles, we will first examine some strategies and suggest some reasons as to why this is the case.